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UPDATE 1-Telefonica set for Spanish infrastucture unit sale by July - source

(Adds details, analysts’ comments, share price; Refiled to remove extraneous text character in paragraph 5)

* Telefonica to spin off Spanish masts unit

* Will list or partially sell the unit in H1-source

* Unit could be valued at up to 6 bln euros-source

By Julien Toyer and Andrés González

MADRID, Jan 11 (Reuters) - Spain’s Telefonica has started to spin-off its domestic infrastructure unit and will seek to list or make a trade sale in a so-called ‘dual track’ offer process by mid-2016, a source familiar with the matter said on Monday.

Telefonica had indicated back in November that it was reviewing its portfolio of infrastructure assets in order to try and extract more value, having already sold over 1,000 masts to Spanish company Cellnex three to four years ago.

“The process has started, the new unit will be formally registered very shortly and Telefonica wants to move quickly on those plans,” the source said.

Telefonica declined to comment.

The new unit would own Telefonica’s 11,500 masts in Spain as well as data centres and some domestic subsea cables and could be valued at between 5 billion and 6 billion euros, the source said, in line with analysts’ estimates.

The company does not rule out adding in the future masts owned by its subsidiaries in other countries, such as Brazil and Germany, to build an international telecoms infrastructure giant worth more than 10 billion euros, the source said.

“Much will depend on how many towers they’ll park into the unit,” said Kepler Cheuvreux analyst Javier Borrachero.

“The upside would be that it could help cut debt, monetise some assets and add value. On the downside, you can be sending the message that you are in need of doing something and you’re more under pressure than people had hoped,” he added.

The company was compelled by the financial crisis eight years ago to reshape its once sprawling empire, making disposals to cut its debt and concentrate instead on improving its performance in its remaining markets in Europe and Latin America.

The level of the company’s debt, which now stands at about 50 billion euros ($54 billion), is no longer seen as a major concern as a multiple of core earnings as its business is showing signs of a pick-up, but this could change if an agreed sale of its 02 UK business to CK Hutchison for 10.3 billion pounds ($15 billion) fails to get a green light from European antitrust authorities.

Analysts say a failure to sell O2 could also endanger the group’s high dividend of 0.75 euros per share - a 7.7 percent yield at current share prices, the second highest among companies in Spain’s IBEX 35 index after oil group Repsol and double that of some major European rivals.

Shares in Telefonica last traded down 1.3 percent at 9.46 euros on Monday, valuing the group at 47.2 billion euros. $1 = 0.9195 euros) ($1 = 0.6880 pounds) (Editing by Greg Mahlich)

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